Amazon Works On Alphabet Projects, Crowded Markets Ahead

Amazon (NASDAQ:AMZN) is extending its mobile computing offerings past is Kindle Fire line of tablet computers and into a much wider reaching range of gadgets -- and these new offerings are not bargain basement products. According to the Wall Street Journal, "One of the devices is a high-end smartphone featuring a screen that allows for three-dimensional images without glasses... Using retina-tracking technology, images on the smartphone would seem to float above the screen like a hologram and appear three-dimensional at all angles... Users may be able to navigate through content using just their eyes."

Innovation on the Horizon at Amazon

And, that is only the beginning. The 3D smartphone is only one of several efforts Amazon is pursuing, collectively known as the Alphabet Projects, according to people familiar with the projects. These so-called Alphabet Projects, known individually as Project A, B, C and D, also include a set-top box for streaming movies and television shows and an audio-only streaming device. Amazon could be releasing these products in the next coming months -- but don't get too excited. According to the Wall Street Journal, "these people cautioned that some or all of the devices could be shelved because of performance, financial or other concerns."

Dealing with Crowded Markets

The harsh truth is that Amazon would be entering a very crowded market, whether it releases a smartphone, set-top box or audiostreaming device. In the smartphone market alone, Apple (NASDAQ:AAPL) and Samsung (OTC:SSNLF) have nearly two-thirds of the US market. Amazon may be able to catapult to the top with its new 3D screen, which is rumored to be powered by Qualcomm (NASDAQ:QCOM) chips, but there are no guarantees.

Developing New Contracts

In addition, before it can effectively sell such a device, the online retail chain would need to negotiate a contract with a wireless carrier. AT&T (NYSE:T) is the likely bet given that it is the company that powers wireless-enabled Kindle Fire tablets, but that doesn't mean that the new smartphone, which runs on 4G LTE, couldn't go with Verizon (NYSE:VZ) Wireless. At any rate, such negotiations tend to slow things down.

Creating New Services

Amazon would also have to create new services in order to make some of its Alphabet Projects hit the ground running. In the case of the audiostreaming device, Amazon would either have to create an audiostreaming service or enable the device to run off Pandora (NYSE:P) or Spotify. There are similar issues with a set-top box. Amazon could structure the device to operate like the Roku system, Apple's Apple TV or Microsoft (NASDAQ:MSFT)'s Xbox 360, but the market is crowded and it is already possible for Amazon Prime users to stream Amazon Instant Video through those devices (except Apple TV). Further, selling its own box at a discount isn't really a possibility for Amazon either -- Roku already sells for less than $50. There wouldn't be too much lower Amazon could go and Roku offers such a large variety of other applications.

Conclusion

All in all, Amazon's foray into hardware is exciting, and it really is a natural extension. Right now, Amazon is trading at $260.16 on a 52-week range of $206.37 to $284.72, but analysts are encouraged. The consensus is that the stock will reach $313.94 in the next year -- that's a return of over 20% if you buy in right now. I think Amazon is well on the way there, but it probably won't be because of its hardware -- at least not just yet.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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